Fashion retailer TFG says it expects a sharp drop in full-year profit as pressure mounts on South African consumers and international trading remains weak.
The group said on Friday that headline earnings per share (HEPS) for the year to end-March are expected to decline 30%-40% while earnings per share (EPS) are expected to fall by as much as 65%.
This comes despite the group, which also owns Jet and Sportscene, reporting a 7.1% surge in sales for the year, or 7.7% in constant currency.
In South Africa, which makes up more than two-thirds of group turnover, trading remained difficult. TFG Africa reported sales growth of 5% for the full year, but profitability declined.
“Trading conditions in South Africa remain challenging with consumer spending still constrained. Heightened geopolitical tensions in the Middle East have continued to contribute to an uncertain global environment,” it said.
TFG added that while sales and gross margins improved in the final quarter this was not enough to recover earlier losses. As a result, TFG Africa’s earnings before interest and tax declined at a mid-teens rate for the year.
In the UK, TFG London reported sales growth of 29.4% for the year in pound terms. However, excluding the recently acquired White Stuff, sales were flat, reflecting ongoing pressure in the UK retail market.
In Australia, conditions were weaker, with sales declining 1.5% for the year and falling 3.4% on a like-for-like basis as consumers remained focused on value.
The group said impairments also weighed heavily on earnings. EPS was affected by a net, non-cash impairment of about R750m related to brand values in its UK and Australian businesses, including Phase Eight and Tarocash.
In addition, higher interest costs and accounting-related lease expenses further reduced earnings.
“The weaker trade in the London and Australia segments in the final quarter, and higher interest and IFRS 16 costs further impacted the decline in HEPS beyond the group’s underlying operating profit result.”
Excluding the contribution from White Stuff, group sales growth was lower at 2.8%, pointing to slower underlying momentum across the business.
The group’s shares closed down 3.1% at R69.16 on Friday giving it a market capitalisation of just under R23bn.
Business Day previously reported that TFG is focusing on growth closer to home, with regional markets helping to offset pressure in South Africa. The group operates more than 3,600 stores across six African countries and has been expanding into Namibia, Botswana, Zambia and Eswatini.
CEO Anthony Thunström has said Namibia in particular is showing strong recovery and growth potential as the group shifts focus to nearby markets.
While regional expansion is providing some support, the group said global uncertainty and geopolitical tensions are expected to continue affecting costs and consumer behaviour.
TFG said its financial results for the year will be released on June 5.
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